We couldn’t help but smile when the last Wall Street Journal of 2013 carried the headline, “Winners of 2013: Boring Investors”. It’s true! The best bets for this past year in the stock market have been plain vanilla portfolios. Unfortunately, many investors not only missed 2013 historic market gains, they lost money.
How is that possible? Often because they relied on bad stockbrokers or exotic hedge fund offerings.
Stockbrokers get paid by commission. Traditional blue chip stock trades pay very little in the way of commissions. But if a broker can get you to purchase exotic investments such as nontraded REITs (Real Estate Investment Trusts), derivatives or promissory notes, they can earn commissions of 10% or more.
We don’t want to suggest that every exotic investment is bad. Many investors follow their broker’s advice however, hoping that “exotic” equals higher returns. As 2013 proves, the exact opposite is often true.
We have seen several REIT fraud and Tenant in Common investment disasters this year. In almost every case, the brokers made money while their clients were wiped out.
Anytime a broker recommends a nontraditional investment, question his or her motives. Are they motivated by higher commissions or do they really believe the investment is right for you?
Is this investment suitable for your needs? Remember that some of these investments such as TICs and REITs are illiquid meaning their is no secondary market. If you may need access to your cash in the short term, find out how easy it is to liquidate your position.
Determine too, whether your stockbroker evens understands the investment and how it works. We have seen several stockbrokers who sold exotic derivatives to many of their clients but couldn’t understand how they work.
If all else fails and you find that you did lose money, consider whether you have a claim against your broker. Stockbrokers and investment advisers can’t guarantee their recommendations but they are responsible for understanding your investment needs and only recommending suitable investments. Brokers who breach those duties may be responsible for your losses.
If you feel like you are a victim of stockbroker fraud, call us. Our team of investment fraud lawyers can help you get your money back. Most cases can be handled on a contingent fee basis meaning no legal fees unless we recover money for you. (Our minimum loss requirement is generally $100,000.) For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at Services are provided anywhere in the U.S.
Post by Brian Mahany, Esq.
(Photo by photoholic and courtesy of freedigitalphotos.net)